Canada: Paved With Good Intentions: Abuse Of Dominance Decision Clarifies Business Justification Defence

In Toronto Real Estate Board v Commissioner of Competition, the Federal Court of Appeal confirmed the conduct of a dominant player that may not be a direct competitor in a market—but nevertheless has a "competitive interest" in that market—can be liable under the abuse of dominance provisions under the Competition Act.1 The Court also clarified what may be considered a legitimate business justification defence to an otherwise anti-competitive practice.

What You Need To Know

  • Competitive interest in the relevant market is enough. Companies with a competitive interest in a given market, including suppliers and ancillary service providers, may be liable for abuse of dominance despite not being a direct competitor in that market. The analysis is not strictly concerned with direct competitors of the company itself but instead  concerned with whether the company's conduct negatively impacts existing or potential competition because of its interest in that market.
  • At-risk practices should be implemented with a clearly defined business purpose. Whether a practice or policy qualifies for the business justification defence is a fact-driven analysis focused on a company's objective and subjective intent in implementing it. Companies are encouraged to seek legal advice to ensure a business justification is properly memorialized to support the defence in the event of an abuse of dominance allegation.
  • Practices in place for other lawful purposes are sheltered from liability. Provided there is a clear factual and legal connection between the practice and another statutory requirement, the intent behind the practice is of no consequence. Legal counsel can assist in assessing whether this connection can be established and that relevant contracts and other documentation are properly drafted to not undermine this rationale.
  • An assessment of abuse of dominance is relative to the current state of the market. The competitive harm analysis is not measured against a hypothetical perfectly competitive market. Rather, any alleged harm is measured relative to the level of actual competition that existed prior to the conduct and whether, "but for" the impugned conduct, competition would no longer be lessened or prevented substantially.

Background

The Toronto Real Estate Board (TREB) maintains an extensive online database comprised of past and present property listings in the Greater Toronto Area (GTA). TREB members have access to the database through an online data feed that can then be made available to prospective clients on a member's website. However, certain data in the database, including past sales information, are excluded from this online data feed and are only accessible to members through other more conventional means (e.g., email, fax). The Commissioner of Competition challenged this practice on the basis that it afforded TREB members a significant advantage over emerging online non-TREB member brokerages that could not access the sales information and, as a result, prevented them from providing prospective clients with a comparable offering. The Competition Tribunal agreed the practice constituted an abuse of dominance. TREB subsequently appealed.

Federal Court of Appeal Decision

In its appeal, TREB’s key argument was its practice to limit access to past sales information only to members was justified on privacy grounds. TREB also asserted this practice was necessary to comply with its obligations under the Personal Information Protection and Electronic Documents Act (PIPEDA).2 In TREB’s view, these constituted legitimate business justifications to defend against any abuse of dominance allegations.

In upholding the Tribunal's decision, the Federal Court of Appeal discussed the substantive requirements of establishing a legitimate business justification. As a starting point, there must be a credible efficiency or pro-competitive rationale behind the impugned practice or policy. The efficiencies or competitive advantages must, in turn, accrue to the benefit of the company that implements the practice or policy. That is, there must be sufficient evidence showing that the practice or policy generates benefits allowing the company to become more competitive. The relevant analysis will turn on evidence of both the objective intent (i.e., the reasonably foreseeable or expected objective effects of an act) and the business' subjective intent. Nevertheless, establishing that the impugned practice or policy was implemented to comply with another statutory or regulatory requirement, regardless of any other intent, is an absolute defense provided that a factual and legal connection exists between the statute or regulation and the impugned practice or policy.

In its decision the Court found that there was a lack of evidence to support privacy concerns as being a principal motivating factor behind excluding sales information from the data feed. Furthermore, since the listing agreement used by TREB members and their clients contained an informed consent for the collection, use and disclosure of certain personal information (including the excluded sales information) TREB could not rely on PIPEDA compliance as a defence. Taken together, the Court accepted the view that the impugned practice was intended to protect TREB members from disruptive online competition contrary to the Act and that the privacy business justification amounted to little more than an afterthought.

In addition, the Court also addressed key aspects of the central analysis under the abuse of dominance provisions. Notably, the Court reaffirmed that the impact of the impugned conduct is measured against the current state of the market and not relative to a hypothetical perfectly competitive market. In other words, any harm will be measured relative to the level of actual competition that existed before the impugned conduct took place and whether, "but for" that conduct, competition would no longer be substantially lessened or prevented.

Footnotes

1 2017 FCA 236; RSC, 1985, c C-34.

2 SC 2000, c 5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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